Yesterday NEVS went public with a plan to exit reconstruction. The core of the plan is that NEVS fully pays its debt to creditors with claims below SEK 500.000 while creditors with higher claims are paid half. Payment shall be executed in two steps. The first one sixty days after the agreement and the second one six months after. This is not really a new plan, they suggested this already six months ago but it was turned down by the creditors.
This of course turns up a few questions. Here is the most obvious ones for me.
– Why are they trying to exit reconstruction now?
In the press release they state that being in reconstruction makes it harder to negotiate with the two OEMs. There is of course quite a bit of truth in that. In reconstruction they are overlooked by the reconstructor who can have a lot of say in how things are done. This may not nessesarily ease negotiations with a future investor, of course depending on how that reconstructor sees things and how well he knows the business. Another point is that this extended reconstruction period is over soon. For another extension NEVS needs the approval of the creditors. If you are not 100% confident to get that you might look for a way out that keeps you alive. Which one is the bigger reason here – I don’t know. But I think that both things playing a role here.
– How does being in reconstruction affect negotiations?
Besides the issue I mentioned above it may also be that the investor wants NEVS to clean up their debt before they are willing to step in. From the point of an investor you want the money you bring in to start future business rather than to cover old claims. Any investment needed to start up development and then later production of cars is big enough and you won’t to add even more on that. It would only raise the risk level and push the point where you get your return on investment further away.
– Why should creditors agree to the cut of their claims?
Having run my own businesses ever since I’d give a simple answer: because in most cases the amount you are offered is more than you would get from a bankrupcy. It is of course harder to agree to the plan for those with bigger claims. Plus, you get only a part of that money now and the rest in half a year. It requires quite a bit of confidence, especially given the experience many of those suppliers have made with Saab under various owners in the past years. But then – even only getting that first part might be the most you can get out of it. And for smaller creitors getting any money might be the key to survival. The tough thing is tht you have to convince them all. To sum it up – I believe there is a fair chance NEVS can get this done.
A backlash in this is that it might be even more difficult to work with those suppliers in the future. But then, this is not the greatest worry at the moment.
– Would creditors agree to extending the reconstruction?
Again, it’s convincing them all. Experiences from the past are not favourable. So with every extension it gets harder to get them all to agree. It’s maybe as hard as getting everybody to agree to a payment plan with the difference that you don’t have money to offer here.
– Where does the money for the payment plan come from?
Most likely it’s Kai-Johan through NMEH who is adding more millions to the big amount he already put into NEVS to keep it alive.
– Is the exit of reconstruction the key to Mahindra’s entry?
No. Well, to put it into a picture it maybe opens one of three locks on that door. In my impression the major obstacle still are the name rights that are tied to certain demands by Saab AB. I went into detail about that before so I won’t do it here again.
– What happens if neither reconstruction nor the payment plan are approved?
I hate to say but that would lead into bankrupcy. But even this must not be the end. If an administrator still believes there is some future in this he could run the profitable parts of the business so they can generate cash tp pay of the debt and at best in some future day release that company from bankrupcy. And there are parts in NEVS that still can generate cash. The real estate and production line if you are able to manufacture for other companies for example. Or simply rent out some parts to other companies. There is also the lab that can be used by others. If the development of the phoenix or even a complete car is possible under such circumstances is hard to say. It’s all about the plan and how much the administrator believes in it.
But then, the latter is nothing I really want to deal with today. Also, I do not want to sound to pessimistic, rather realistic. I still believe that there is a chance for NEVS but it is a tough road. Still, from my point of view NEVS are doing all they can do to bring this to a positive outcome. Let’s hope some more things fall in place.